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Ruffer dismisses Japan naysayers

Ruffer dismisses Japan naysayers

Steve Russell and Hamish Baillie, managers of the £317 million Ruffer investment trust, have argued that the case for Japanese equities has not been dented by the country’s consumption tax hike this month.

At the start of the month Japan increased the tax from 5% to 8%, the first rise in 17 years. The last time it jumped, in 1997, it was blamed for pushing the country into recession and the Japanese stock market into its lost decade.

The Ruffer pair, however, took heart from higher wages in the country. Salary negotiations are now concluding, and Russell and Baillie estimated that total pay would be up by 2-3% on average – the first growth in 15 years.

‘The naysayers will claim that the rise was too small to have a material impact on consumer psychology and change their propensity to save rather than spend,’ the duo accepted.

‘However, this is the first part of a long-term change of direction, and the effects of real wage growth when workers have seen their salaries decline for so long should not be underestimated.’

Baillie and Russell (pictured) continued: ‘There were also some fascinating insights into the pact between Abe and the corporate sector. Toshiba’s announcement of salary increases was accompanied by the statement, “With this agreement we aim to contribute to the creation of the virtuous economic circle advocated by the Japanese government”. This sort of unity greatly increases the chances of success for Abenomics.’

The Ruffer team also noted that dividends in Japan have hit record levels in absolute terms, with an average market yield of 1.8%.

‘This shows that companies are feeling more confident and shareholders are seeing the benefits of last year’s stellar corporate results,’ they contended, highlighting that Japanese profits surged by 54% in 2013.

Their investment trust currently has a 14% weighting to Japanese equities.

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